Why to Keep your Business and Personal Finances Separate

A business despite being shaped and nurtured by the owner like its own baby has its own distinctive identity. The owner and the business cannot be considered one. But in cases of small businesses, important financial separations, being governed by the same person, are brushed off unnoticed. Personal and business finance become intertwined.

 Keep your Business and Personal Finances Separate

Record of income and expenditures is the factor which indicates the performance of the business and thus should be kept separate from personal financial records. The money line between the two should not be blurred otherwise it could create an unpleasant financial situation.

What could go wrong if your finances are intermixed?

Your business has its own identity and there are several reasons why their finances should not be interwoven with personal finances. If the thin line between them is crossed the consequences could be severe.

Risking personal assets

mixing finances can put business owner's personal assets at risk

If small business owners mix their finances, their personal assets could become prone to risks. An outsider may claim personal assets for business liability and the business owner may not be able to evade it.

Complicated tax dues

If personal and business finances are intermingled, the business owner may have difficulty in calculating their taxable income. This may result in complications and the owner may have to pay penalties, fines, or higher taxes that can otherwise be avoided.

Messed accounts

In certain cases, small business owners may assign personal assets under business assets to reap the benefits of depreciation and lower their tax liability. The case may be vice-versa also. This practice can be unhealthy for the business as the owner will never be able to apportion the assets separately.

An Unprofessional Approach

separate personal and business finances is a sign of a healthy financial practice and professionalism.

Clients, creditors and vendors hesitate to develop work relationships if they sense a lack of professionalism in the company Having separate personal and business finances is a sign of a healthy financial practice and professionalism. This gives assurance of the legitimacy and competence of the business allowing them to build a long term professional relationships.

Doubtful creditworthiness

When business cash and personal cash are not mixed, it is easier to manage the cash flow into the business and the creditworthiness of the business is more perspicuous. Since the financial investors can tell if both the finances are mixed up, credit agencies retreat in providing loans to businesses that do not have separate assets and liability checklist.  

 businesses need to have separate assets and liability checklist

Maneuvering techniques to keep the finances apart

  • Small business owners have to keep separate financial records for their business and their personal investments and expenditures.
  • The bank account for the business should be separate and so should the debit and credit cards, so that payments and deposits of both the accounts go into and from the appropriate account.
  • Drawing out a salary from the business account every month shall enable both the business account and the personal account to exhibit debit and credit accordingly.
  • Services of a skilled financial accountant are mandatory as they can help give the right accounting treatment, categorizing expenses and preparing clear books of accounts.

Small business owners often muddle up between the two finances.  They overlook that keeping separate accounts is rudimentary to success. To learn more about how you can keep your business and personal finances separate. Contact the experts at FFPCT here – FFPCT Business Finance Consultants and book a free consultation.

How Small Business Owners Can Diversify Their Investments

Small business owners frequently attune themselves mentally with the concept that their business is their sole benefactor and during financial upheavals and retirement it shall be enough. What they often fail to comprehend is that by investing only in their business they are skating on thin ice. Eliminating or reducing these risks requires maneuvering through financial strategies, diversification of investment being the foremost.

How Small Business Owners Can Diversify Their Investments

Diversification in investments is an assured strategy to mitigate unknown financial risks and avoid losses to capital in such ways that even if there is a slip, there are backups that will not let the business owners fall flat financially.  Thus, rather than jeopardizing their hard-earned revenues by being solely dependent on it, it is judicious that their portfolio is inclusive of a wide variety of investments.

“Investing is the intersection of economics and psychology.”

                                                                          -Seth Klarman

Here are six investment approaches that can be embraced by small business owners:

Dealing in Penny stocks- Penny stocks are available for trading in the market in less than a dollar. One will not start minting money by investing in them but with consistency, the accumulated money begins to grow.

diversify your investments by Dealing in Penny stocks

Keeping away from the business’s industry- One tends to invest in a trade they are familiar with.  They understand the pulse of the industry they are conducting business in and thus they feel comfort and confidence in investing in stocks concerned with the same industry. But that approach should be avoided. As a small business owner, one needs to step out of that zone as their business is already covering that aspect of investment.

Indulging in rental properties- If the business can accommodate then investment in rental properties is a pretty good strategy to diversify. Properties are considerably remunerative and also provide the business owner an opportunity to invest in some other sector other than stocks.

Investing in stocks- Investing in stocks is a beneficial investment strategy. It is vital to critically appraise the performance of the stocks the business owner is interested in and research on them meticulously before taking a plunge.

small businesses can invest in stocks to diversify their income

Markets are notorious for their unpredictable ups and downs. It is important that as an investor the business owner is mentally equipped for the same.

“Diversify in stocks and bonds, as in much else, there is safety in numbers”

                                                                                          -Sir John Templeton

Start building contingency fund- Keeping aside some cash as an emergency fund can be considered another safe bet. It can be looked upon as an investment strategy. The small business owners can begin by taking out small amounts of cash on a weekly basis and then gradually increase the sum. By the end of it, they will be amazed at how much they have managed to set aside.

small businesses can invest in cryptocurrency

Crypto currency is another lucrative option- A small business owner can invest in cryptocurrency considering it another diversification strategy. To flow with the tide and swim in safe waters always pays off. With the way crypto currency is making its way into every investment portfolio, a small business owner can put their funds in it.

It is crucial that small business owners diversify their investment after diligent and wise investment strategy formulation. It works as an umbrella during contingent times.

Do you need assistance diversifying your investments? You can always book a free consultation with the experts at FFPCT here – FFPCT Business Finance Consultants